PwC | IAB internet advertising revenue report | 1 Background About the IAB internet advertising revenue report Conducted by PricewaterhouseCoopers LLP (“PwC”) on an ongoing basis, with results released quarterly, the “IAB internet advertising revenue report” was initiated by the interactive advertising Bureau (IAB) in 1996. This report utilizes data and information reported directly to PwC from companies selling advertising on the internet as well as publicly available corporate data. The results reported are considered to be a reasonable measurement of internet/online/mobile advertising revenues because much of the data is compiled directly from information supplied by companies selling advertising online. The report includes data reflecting desktop and mobile online advertising revenues from websites, commercial online services, ad networks and exchanges, mobile devices, and email providers, as well as other companies selling online advertising. The report is conducted independently by PwC on behalf of the IAB. PwC does not audit the information and provides no opinion or other form of assurance with respect to the information. Only aggregate results are published and individual company information is held in strict confidence with PwC. Further details regarding scope and methodology are provided in the appendix to this report.

PwC | IAB internet advertising revenue report | 2 “Over the course of the last 23 years, this report has served as the official tracking mechanism of the size of the digital advertising industry and the trends propelling its ongoing rise. This 2018 half year report continues to drive awareness of the great influence of this industry, and specifically the great transformation that has occurred in the advertising ecosystem.” | David Silverman, Partner, PwC Executive summary “This landmark figure cements digital advertising— whether display, search or mobile video—as one of the most powerful mechanisms of all time for brands to build relationships with consumers. It’s a truth upon which direct-to-consumer brands have built their businesses, and from which all businesses can benefit.” | Randall Rothenberg, President and CEO, IAB * Digital audio advertising revenues have been revised for HY 2016 and HY 2017 to include Podcast advertising. See page 3 for impact to HY total digital advertising revenues.

See page 17 for the impact to HY digital audio revenues. See page 24 for impact to the quarterly digital advertising revenues. Digital revenues increased 23.1% in HY 2018 Internet advertising revenues in the United States totaled $49.5 billion for the first six months of 2018, with Q1 2018 accounting for approximately $23.9 billion and Q2 2018 accounting for approximately $25.6 billion. Revenues for the first six months of 2018 increased 23.1% over the first six months of 2017.* Quarter over quarter digital revenues increase 7.2% for Q2 2018 Internet advertising revenues in the United States totaled $25.6 billion in the second quarter of 2018, an increase of 7.2% from the 2018 first quarter total of $23.9 billion and an increase of 22.9% from the 2017 second quarter total of $20.8 billion.

Advertising revenues delivered on mobile devices totaled $30.9 billion in HY 2018, a 42.0% increase from the prior half year revenues of $21.8 billion. Advertising delivered on a mobile device now makes up 62.5% of total internet advertising revenues.

PwC | IAB internet advertising revenue report | 4 Key growth drivers Over an 8 year period, including the last six months, the US digital advertising industry has sustained double-digit growth. This growth, which is unique amongst all other ad-supported media is, in part, attributable to the following underlying drivers disrupting the industry today. Digital advertising is improving its agility The ever-increasing sophistication of digital advertising has proven to be invaluable to consumers, brands, and advertising agencies over the last several years. Enabled by data analytics, and, more recently, machine learning, digital advertising has evolved from ubiquity to specificity in a way that has raised consumer concerns and expectations. As advertising continues to refine its capabilities, it is more likely to be experienced as insightful and useful rather than invasive. Consumers, particularly Millennials and older members of Gen Z, are becoming more accepting of relevant advertising as digital acquaintance. Consumers now welcome active advertising that responds to and reflects, in real time, social activity, location, and brand and product preferences. This ability to be agile within the consumer’s connected experience is an emerging revenue driver and will continue to grow as ad platforms and presentations become smarter and more contextual. This increasing agility in digital advertising is of particular interest to direct-to-consumer brands. This agility will enable more effective and efficient advertising and lower the cost of customer acquisition. As the cost of customer acquisition yields an increasingly profitable return on advertising investment, the direct brand companies will continue to commit larger portions of their budgets to advertising efforts, funding further growth. Mobile commerce drives mobile advertising The explosion of eCommerce continues to disrupt the retail industry. Consumers are no longer complacent shopping in a physical space—they are in search of on-demand inspiration, information, and delivery. With the advent of the direct brand economy, where most of these purchases are being made over the internet, and the streamlining of purchases using shoppable photos and mobile pay, advertisers have shifted focus to transform online traffic into buy ‘clicks’. Mobile commerce (mCommerce) is creating further disruption in the retail industry, making it even easier for consumers to shop and buy and blurring the lines between the physical and online marketplace. Growth in mCommerce means advertisers can reach the constantly connected consumer at any time, in real time and where they transact. Furthermore, the use of personal mobile devices allows advertisers the ability to overlay big data analysis with intimate insights into users’ lifestyle, behaviors and preferences. Advertisers can create targeted and effective ad content, while their marketer counterparts are able to evaluate ad campaigns in real time and quickly adjust to improve overall effectiveness. With all of these benefits, mCommerce will continue to drive growth in mobile advertising. Digital audio will take advertising off screen The growing digital audio industry is providing advertisers with fresh ways to engage consumers, at home and on the go. Consumers are increasingly turning to audio for quick and convenient access to news, music, spoken word, and other forms of entertainment. The medium, primarily comprised of streaming audio, radio, and podcasts, is rapidly expanding onto its next platform, smart speakers. Smart speakers, one of the fastest growing consumer tech products in the United States, represent the next stage of progress for consumer engagement and burgeoning advertiser participation. As users become more comfortable with and reliant upon voice assistance, they are expected to spend less time with more traditional entertainment media, and advertisers are paying attention. Some services are even beginning to launch self-service ad platforms, making audio ad creation, audience targeting, and response tracking easier than ever before. These trends indicate that the next level of audio engagement is fast approaching

PwC | IAB internet advertising revenue report | 5 with smart speaker manufacturers considering integrating social engagement (through partnerships with or self-built social media platforms) in hopes of making an increasingly intuitive and customizable experience. Currently, digital audio advertising heard through smart speakers is limited to ads inserted into existing audio media content, most often streamed music and podcasts. However, as brands increase the number of stand-alone apps, and as smart speaker manufacturers launch their own audio ad platforms and services, there is an expectation that digital audio advertising revenue will follow. Gen Z will influence the digital advertiser mix As expected, the up-and- coming generation of advertising targets, Generation Z, has already influenced today’s digital advertising mix, and that influence is only projected to grow. By 2019, Gen Zers will outnumber Millennials, and will have earned the superlative of being the youngest generation to adopt mobile devices. According to a recent study, social media is Gen Z’s preferred source of shopping inspiration, with search engines and eCommerce sites serving as primary sources for product comparison and research. Digital advertisers also note that Gen Z shoppers are the most likely of all 1. PwC Holiday Outlook, 2018 2. PwC Global Entertainment & Media Outlook, 2018 3. PwC Perspectives from the Global Entertainment and Media Outlook 2017–2021 consumers to use “buy” buttons (56%) and shoppable photos (34%) to complete a purchase.1 However, the Gen Z rush to an increasingly mobile existence is not without its pain points. As mobile screen time continues to rise across all generations, digital advertisers will encounter increasingly short attention spans.2 Gen Zers also display the highest propensity to avoid traditional advertising, skipping ads faster and more often. Non-skippable pre- roll ads are unpopular with Gen Z, as evidenced by the rise in ad blocking software (which Gen Z is also the most likely generation to use).3 With these trends in mind, less invasive strategies, such as mobile reward videos, are likely to achieve positive results. Digital advertisers are finding that leveraging humor in ads (offering entertainment rather than traditional marketing messaging) and investing in other alternative methods (such as forming relationships with social media influencers and subsidizing shoppable social media experiences) are the keys to unlocking this generation’s eyes and ears. Digital video will continue to grow and expand As the rate at which data traveling across networks has increased, digital advertising has also become faster, riding the virtual wave to a greater share of advertising spend and higher revenues. The digital advertising format that has, perhaps, experienced the greatest benefit from these infrastructure advancements is digital video, enjoying an enhanced reputation for being responsive and relevant. Once constrained to screens with cables, digital video ads are now nearly as free to roam as their cord-cutting viewers. Driving revenue growth in digital video advertising is the increasing inventory on video sharing sites and through OTT services; however, the key to its growing dominance may be best explained by the rise of digital video on social media platforms, introducing innovative formats and new pricing models, including premium placements and ad campaigns capable of running across an expanding universe of screens. Add to this demand the convenience of self-service platforms for advertisers, particularly direct to consumer brands, with robust analytics, and the appeal of the channel is apparent. Future near-term growth in mobile digital video ad spending is expected to be fueled by the launch of 5G. In addition to enabling more interactive mobile and desktop digital video advertising, 5G is expected to increase the capabilities of digital out of home advertising networks as well.

PwC | IAB internet advertising revenue report | 8 Historical quarterly revenue trends Quarterly growth continued upward trend reaching $25.6 billion in Q2 2018 Following the momentum built in 2010, internet advertising continues to show strong growth. Q2 revenues continue to trend upward, recovering from the Q1 seasonal dip, but remain below the high mark set in Q4 2017. As a testament to how much the market has grown, Q2 2018 revenue ($25.6 billion) alone tops 2009’s full year total of $22.7 billion.

PwC | IAB internet advertising revenue report | 18 Pricing models A portion of CPM pricing model shifted to the hybrid model • 61.0% of HY 2018 internet advertising revenues were priced on a performance basis, down a few points from the 64.9% reported in HY 2017. The decrease in use of this pricing model has shifted to the hybrid model. • 35.5% of HY 2018 internet advertising revenues were priced on a CPM basis, up slightly from the 33.4% reported in HY 2017. • 4.6% of HY 2018 internet advertising revenues were priced on a hybrid basis, a significant gain from the 1.7% reported in HY 2017. Increase in hybrid is due to an uptick in direct submissions; most likely attributed to the changing landscape of how publishers monetize ad space on their sites. Revenue by pricing model, half year basis ($ billions) Note: Totals may not equal 100% due to rounding. Source: IAB/PwC Internet Ad Revenue Report, HY 2018 Half year 2018 Half year 2017 33.4% 64.9% 1.7% 34.5% 61.0% 4.6% CPM pricing model Performance pricing model Hybrid pricing model

PwC | IAB internet advertising revenue report | 19 Historical pricing model trends Hybrid pricing saw significant growth in HY 18 • Performance-based pricing, the leading pricing model since 2006, dipped slightly to 61.0% of total internet advertising revenues in HY 2018. • CPM pricing ticked up in HY 2018, up to 34.5% of revenue from 33.4% in HY 2017. • Hybrid pricing increased to 4.6% of total internet advertising revenues in HY 2018, up from the 1.7% reported in HY 2017. Internet advertising revenue by pricing model, * 2005-2018 (% of total revenue) * Pricing model definitions may have changed over the time period depicted both within the survey process and as interpreted by survey respondents.

PwC | IAB internet advertising revenue report | 21 Definitions of advertising formats and pricing models Banner advertising Advertiser pays an online company for space on one or more of the online company’s pages to display a static or linked banner or logo. Sponsorship Advertiser pays for custom content and/or experiences, which may or may not include ad elements such as display advertising, brand logos, advertorial, or pre-roll video. Sponsorships fall into several categories: • Spotlights are custom-built pages incorporating an advertiser’s brand and housing a collection of content usually around a theme.

• Advergaming can range from an advertiser buying all the ad units around a game or a “sponsored by” link to creating a custom branded game experience. • Content & section sponsorship is when an advertiser exclusively sponsors a particular section of the site or email (usually existing content) re-skinned with the advertiser’s branding. • Sweepstakes & contests can range from branded sweepstakes on the site to a full-fledged branded contest with submissions and judging.

Search Fees advertisers pay online companies to list and/or link their company site domain name to a specific search word or phrase (includes paid search revenues). Search categories include: • Paid listings—payments made for clicks on text links that appear at the top or side of search results for specific keywords. The more a marketer pays, the higher the position it gets. Marketers only pay when a user clicks on the text link. • Contextual search—payments made for clicks on text links that appear in an article based on the context of the content, instead of a user-submitted keyword. Payment only occurs when the link is clicked. • Paid inclusion—payments made to guarantee that a marketer’s URL is indexed by a search engine (i.e. advertiser isn’t paid only for clicks, as in paid listings).

• Site optimization—payments made to optimize a site in order to improve the site’s ranking in search engine results pages (SERPs). (For example, site owner pays a company to tweak the site architecture and code, so that search engine algorithms will better index each page of the site). Lead generation Fees paid by advertisers to online companies that refer qualified potential customers (e.g., auto dealers which pay a fee in exchange for receiving a qualified purchase inquiry online) or provide consumer information (demographic, contact, and behavioral) where the consumer opts in to being contacted by a marketer (email, postal, telephone, fax). These processes are priced on a performance basis (e.g., cost-per-action, -lead or -inquiry), and can include user applications (e.g., for a credit card), surveys, contests (e.g., sweepstakes) or registrations. Classifieds and auctions Fees paid to advertisers by online companies to list specific products or services (e.g., online job boards and employment listings, real estate listings, automotive listings, auction-based listings, yellow pages). Rich media Display-related ads that integrate some component of streaming interactivity. Rich media ads often include flash or java script, but not content, and can allow users to view and interact with products or services (e.g., scrolling or clicking within the ad opens a multimedia product description, expansion, animation, video or a “virtual test-drive” within the ad).

All IAB Rising Stars ad formats are considered rich media. Video commercials that appear in video players are considered video ads, not rich media. “Interstitials” have been consolidated within the rich media category and represent full- or partial-page text and image server-push advertisements which appear in the transition between two pages of content. Forms of interstitials can include a variation of the following terms: • Splash screens—a preliminary page that precedes the regular home page of a website that usually promotes a particular site feature or provides advertising. A splash page is timed to move onto the home page after a short period of time.

• Pop-up ads and pop-under ads—an advertisement that appear in a separate window which automatically loads over an existing content window, without an associated banner. • Daughter windows—an advertisement that runs in a separate window associated with a concurrently displayed banner. The content and banner are typically displayed first, followed by the daughter window. • Superstitials—ads that are distinct from interstitials because of the much higher ad quality, and that they play instantly (ads are fully downloaded before they are displayed).

PwC | IAB internet advertising revenue report | 22 Definitions of advertising formats and pricing models Digital audio Partially or entirely advertising-supported audio programming available to consumers on a streaming basis, delivered via the wired and mobile internet. This includes a wide range of services, such as the following: • Online audio streams of terrestrial radio stations; • Purely online radio stations, with either professional or amateur DJs; • Personalized (i.e., without human editors/DJs) and on-demand, streamed audio services that create playlists based on user preferences of artists, tracks, or genres; Music or spoken word audio content delivered within a different website or application, e.g., in-game music services.

Digital audio is currently included in other. A podcast is a digital audio program, often comprised of a series of episodes, which may be livestreamed for immediate listening, or downloaded from the Internet to a computer or mobile device, for on demand listening. Digital video advertising Advertising that appears before, during or after digital video content in a video player (i.e. pre-roll, mid-roll, post-roll video ads). Digital video ads include TV commercials online and can appear in streaming content or in downloadable video. Display-related ads on a page (that are not in a player) that contain video are categorized as Digital video ads.

Video overlays are also categorized as digital video advertising. Video overlays include small ads that appear on top of digital video content. They can appear to be display, video, rich media, text or another ad format but are contained within the video player. OTT revenue is included in digital video advertising revenues, however, is not separately accounted for from participating companies. Mobile advertising Advertising tailored to and delivered through wireless mobile devices such as smartphones, feature phones (e.g. lower-end mobile phones capable of accessing mobile content), and media tablets. Typically taking the form of static or rich media display ads, text messaging ads, search ads, or audio/video spots, such advertising generally appears within mobile websites (e.g. websites optimized for viewing on mobile devices), mobile apps (e.g. applications for smartphones running proprietary or open operating systems), text messaging services (i.e. SMS, MMS) or within mobile search results (i.e., 411 listings, directories, mobile-optimized search engines). Mobile advertising formats include: search, display-related (banner ads, video, sponsorships, and rich media), and other (lead generation, classifieds and directories, and audio) advertising served to mobile devices. Social media advertising Advertising delivered on social platforms, including social networking and social gaming websites and apps, across all device types, including desktop, laptop, smartphone and tablet.

For more information, contact one of the following PwC professionals: New York David Silverman Partner, Assurance Services 646.471.5421 david.silverman@pwc.com Brian Gaffney Director, Advisory Services 646.471.4722 brian.gaffney@pwc.com PwC has exercised reasonable care in the collecting, processing, and reporting of this information but has not independently verified, validated, or audited the data to verify the accuracy or completeness of the information. PwC gives no express or implied warranties, including but not limited to any warranties of merchantability or fitness for a particular purpose or use and shall not be liable to any entity or person using this document, or have any liability with respect to this document.